Quality-of-life index
THE WORLD IN 2OO5
The Economist Intelligence Unit’s quality-of-life index
The Economist Intelligence Unit has developed a new “quality of life” index based on a unique methodology that links the results of subjective life-satisfaction surveys to the objective determinants of quality of life across countries. The index has been calculated for 111 countries for 2005. This note explains the methodology and gives the complete country ranking. Quality-of-life indices It has long been accepted that material wellbeing, as measured by gdp per person, cannot alone explain the broader quality of life in a country. One strand of the literature has tried to adjust gdp by quantifying facets that are omitted by the gdp measure—various nonmarket activities and social ills such as environmental pollution. But the approach has faced insurmountable difficulties in assigning monetary values to the various factors and intangibles that comprise a wider measure of socio-economic wellbeing. There have been numerous attempts to construct alternative, non-monetary indices of social and economic wellbeing by combining in a single statistic a variety of different factors that are thought to influence quality of life. The main problem in all these measures is selection bias and arbitrariness in the factors that are chosen to assess quality of life and, even more seriously, in assigning weights to different indicators (measured on a comparable and meaningful scale) to come up with a single synthetic measure. gdp, despite its drawbacks, at least has a clear, substantive meaning and prices are the objective weights for the goods and services that make it up (although there are also very big problems in estimating the purchasing-power parities that have to be used instead of market exchange rates in order to express countries’ incomes in the same currency). Some researchers have invoked the un’s Universal Declaration of Human Rights to identify the factors that need to be included in a quality-of-life measure. But, even if accepted as a starting point, that still does not point to precise indicators or how they are to be weighted. A technocratic and unsatisfying device that is sometimes used is to resort to “expert opinion”.
Life-satisfaction surveys Our starting point for a methodologically improved and more comprehensive measure of quality of life is subjective life-satisfaction surveys (surveys of life satisfaction, as opposed to surveys of the related concept of happiness, are preferred for a number of reasons). These surveys ask people the simple question of how satisfied they are with their lives in general. A typical question on the four-point scale used in the eu’s Eurobarometer studies is, “On the whole are you very satisfied, fairly satisfied, not very satisfied, or not at all satisfied with the life you lead?” The results of the surveys have been attracting growing interest in recent years. Despite a range of early criticisms (cultural non-comparability and the effect of language differences across countries; psychological factors distorting responses), tests have disproved or mitigated most concerns. One objection is that responses to surveys do not adequately reflect how people really feel about their life; they allegedly report how satisfied they are expected to be. But people know very well how satisfied they are. Responses to questions about life satisfaction tend to be prompt; non-response rates are very low. This simple measure of life satisfaction has been found to correlate highly with more sophisticated tests, ratings by others who know the individual, and behavioural measures. The survey results have on the whole proved far more reliable and informative than might be expected. Another criticism is that life-satisfaction responses reflect the dominant view on life, rather than actual quality of life in a country. Life satisfaction is seen as a judgment that depends on social and culturally specific frames of reference. But this relativism is disproved by the fact that people in different countries report similar criteria as being important for life satisfaction, and by the fact that most differences in life satisfaction across countries can be explained by differences in objective circumstances. In addition, it has been found that the responses of immigrants in a country are much closer to the level of the local population than to responses in their motherland. Answers to questions on satisfaction
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Quality-of-life index in bilingual countries do not reveal any linguistic bias arising from possibly differing meanings and connotations of the words “happiness” and “satisfaction”. Selfreports of overall life satisfaction can be meaningfully compared across nations. The Economist Intelligence Unit’s index So why not just take the survey results completely at face value and use the average score on life satisfaction as the indicator of quality of life for a country? There are several reasons. First, comparable results for a sufficient number of countries tend to be out-of-date and many nations are not covered at all. Second, the impact of measurement errors on assessing the relationship between life-satisfaction perceptions and objective indicators tends to cancel out across a large number of countries. But there might still be significant errors for any given country. So there is a bigger chance of error in assessing quality of life between countries if we take a single average life-satisfaction score as opposed to a multi-component index. Finally, and most important, although most of the inter-country variation in the life-satisfaction surveys can be explained by objective factors, there is still a significant unexplained component which, in addition to measurement error, might be related to specific factors that we would want to net out from an objective quality-of-life index. Instead we use the survey results as a starting point, and a means for deriving weights for the various determinants of quality of life across countries, in order to calculate an objective index. The average scores from comparable life-satisfaction surveys (on a scale of one to ten) can be assembled for 1999 or 2000 for 74 countries. These scores are then related in a multivariate regression to various factors that have been shown to be associated with life satisfaction in many studies. As many as nine factors survive in the final estimated equation (all except one are statistically significant; the weakest, gender equality, falls just below). Together these variables explain more than 80% of the inter-country variation in life-satisfaction scores. Using so-called Beta coefficients from the regression to derive the weights of the various factors, the most important were health, material wellbeing, and political stability and security. These were followed by family relations and community life. Next in order of importance were climate, job security, political freedom and finally gender equality. The values of the life-satisfaction scores that are predicted by our nine indicators represent a country’s quality-of-life index, or the “corrected” life-satisfaction scores, based on objective cross-country determinants. The coefficients in the estimated equation weight automatically the importance of the various factors; the method also means that the original units or measurement of the various indicators can be used. They do not, unlike for other indices, have to rely on the potentially distortive effect of having to transform all indicators to a common measurement scale. We can also use the estimated equation based on 1999/2000 data to calculate index values for other years or even to forecast an index, thus making it up-to-date and facilitating comparison over time.
THE WORLD IN 2OO5
Determinants of quality of life The nine quality-of-life factors, and the indicators used to represent these factors, are: 1. Material wellbeing gdp per person, at ppp in $. Source: Economist Intelligence Unit 2. Health Life expectancy at birth, years. Source: us Census Bureau 3. Political stability and security Political stability and security ratings. Source: Economist Intelligence Unit 4. Family life Divorce rate (per 1,000 population), converted into index of 1 (lowest divorce rates) to 5 (highest). Sources: un; Euromonitor 5. Community life Dummy variable taking value 1 if country has either high rate of church attendance or trade-union membership; zero otherwise. Sources: ilo; World Values Survey 6. Climate and geography Latitude, to distinguish between warmer and colder climes. Source: cia World Factbook 7. Job security Unemployment rate, %. Sources: Economist Intelligence Unit; ilo. 8. Political freedom Average of indices of political and civil liberties. Scale of 1 (completely free) to 7 (unfree). Source: Freedom House 9. Gender equality Ratio of average male and female earnings, latest available data. Source: undp Human Development Report
A number of other variables were also investigated but, in line with findings in the literature, had no impact in this multivariate framework. These were: education levels, the rate of real gdp growth and income inequality (Gini coefficient). Studies have often found at most a small correlation between education and life satisfaction, over and above any impact that education has on incomes and health, and possibly other variables such as the extent of political freedom. A recent report by the ilo found that an indicator of schooling and training was actually inversely related to wellbeing when jobs are poorly attuned to people’s needs and aspirations. Regression statistics Multiple R Adjusted R square Standard error Observations
Constant GDP per person Life expectancy Political freedom Job security Family life Climate and geography Political stability Gender equality Community life
0.919 0.823 0.482 74 Coefficients Standard error 2.7959 0.7890 0.00003 0.00001 0.0448 0.0106 -0.1052 0.0561 -0.0217 0.0099 -0.1878 0.0640 -1.3534 0.4691 0.1519 0.0520 0.7423 0.5428 0.3865 0.1237
Statistic 3.5435 3.5247 4.2299 -1.8749 -2.2062 -2.9349 -2.8852 2.9247 1.3676 3.1255
Quality-of-life index
THE WORLD IN 2OO5
The role of income The aim is to supplement not supplant real gdp. We find that gdp per person explains more than 50% of the inter-country variation in life satisfaction, and the estimated relationship is linear. Surveys show that even in rich countries people with higher incomes are more satisfied with life than those with lower incomes. In 24 out of 28 countries surveyed by Eurobarometer, material wellbeing is identified as the most important criterion for life satisfaction. However, over several decades there has been only a very modest upward trend in average life-satisfaction scores in developed nations, whereas average income has grown substantially. There is no evidence for an explanation sometimes proffered for the apparent paradox of increasing incomes and stagnant life-satisfaction scores: the idea that an increase in someone’s income causes envy and reduces the welfare and satisfaction of others. In our estimates, the level of income inequality had no impact on levels of life satisfaction. Life satisfaction is primarily determined by absolute, rather than relative, status (related to states of mind and aspirations). The explanation is that there are factors associated with modernisation that, in part, offset its positive impact. A concomitant breakdown of traditional institutions is manifested in the decline of religiosity and of trade unions; a marked rise in various social pathologies (crime, and drug and alcohol addiction); a decline in political participation and of trust in public authority; and the erosion of the institutions of family and marriage. In personal terms, this has also been manifested in increased general uncertainty and an obsession with personal risk. These phenomena have accompanied rising incomes and expanded individual choice (both of which are highly valued). However, stable family life and community are also highly valued and these have undergone a severe erosion. 2005 quality-of-life index The coefficients in the equation are used to forecast a quality-of-life index for 2005. Four of the indicators are forecast for 2005 (gdp, life expectancy, unemployment rate, political stability); one (geography) is fixed and the remaining four, which represent slow-changing factors, are based on the latest available data. The table presents values of the forecast index for 2005 for 111 countries. Also in the table are data for gdp per person at ppp. For The World in 2005, Economist.com conducted an electronic survey, with more than 3,000 respondents, on how people rated various factors associated with quality of life (on a scale of one to five). Although the approaches are very different and the Economist.com sample of mainly well-to-do, English speaking and globalised people is rather unrepresentative, it is interesting to compare the implied weightings from the survey responses with those that emerge from our approach (for factors covered in both). There are differences, but they seem much less dramatic than might have been expected, underscoring the assumption of universalist values that underpins our approach.
Economist.com survey weights Material wellbeing 11.5 Health 15.0 Family relations 14.3 Job security 11.9 Social and community activities 10.9 Political freedom and security 25.3 Gender equality 11.1 100.0
Quality-of-life weights 18.8 19.0 11.3 7.7 12.2 26.2 4.7 100.0
Accounting for difference The framework for calculating quality-of-life indices can be used to decompose and compare the sources of differences in quality of life between countries and regions (the values of the explanatory variables are multiplied by the equation coefficients). When one understands the interplay of modernity and tradition in determining life satisfaction, it is then easy to see why Ireland ranks a convincing first in the international quality-of-life league table. It successfully combines the most desirable elements of the new—material wellbeing, low unemployment rates, political liberties—with the preservation of certain life satisfaction-enhancing, or modernity-cushioning, elements of the old, such as stable family life and the avoidance of the breakdown of community. Its score on all of these factors are above the eu-15 average, easily offsetting its slightly lower scores on health, climate and gender equality. The United Kingdom, by contrast, ranks 29th in the world—well below its rank on income per person and bottom among the eu-15 countries. Social and family breakdown is high, offsetting the impact of high incomes and low unemployment. Its performance on health, civil liberties, and political stability and security is also below the eu-15 average. The United States ranks lower on quality of life than on income but it is above the eu-15 average. Italy performs well, but Germany and France do not—belying the notion that the big eurozone nations compensate for their productivity lag with a better quality of life than in America. Accounting for differences in quality of life, 2005
EU-15 score Difference Material wellbeing Health Political freedom Job security Family life Climate and geography Political stability Gender equality Community life Total
Ireland score 8.333 7.504 0.829
UK score 6.917 7.504 -0.587
US score 7.615 7.504 0.111
0.179 -0.054 0.028 0.061 0.426 -0.049 0.105 -0.098 0.232 0.829
0.010 -0.017 -0.025 0.039 -0.326 -0.064 -0.100 0.050 -0.155 -0.587
0.321 -0.047 0.028 0.034 -0.326 0.177 -0.373 0.065 0.232 0.111
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Quality-of-life index
THE WORLD IN 2OO5
Worldwide quality-of-life index, 2005 (Score on a scale from 1 to 10)
Ireland Switzerland Norway Luxembourg Sweden Australia Iceland Italy Denmark Spain Singapore Finland United States Canada New Zealand Netherlands Japan Hong Kong Portugal Austria Taiwan Greece Cyprus Belgium France Germany Slovenia Malta United Kingdom Korea, South Chile Mexico Barbados Czech Republic Costa Rica Malaysia Hungary Israel Brazil Argentina Qatar Thailand Sri Lanka Philippines Slovakia Uruguay Panama Poland Croatia Turkey Trinidad and Tobago Ecuador Peru Colombia Kuwait El Salvador
Quality of life Score Rank 8.333 1 8.068 2 8.051 3 8.015 4 7.937 5 7.925 6 7.911 7 7.810 8 7.796 9 7.727 10 7.719 11 7.618 12 7.615 13 7.599 14 7.436 15 7.433 16 7.392 17 7.347 18 7.307 19 7.268 20 7.259 21 7.163 22 7.097 23 7.095 24 7.084 25 7.048 26 6.986 27 6.934 28 6.917 29 6.877 30 6.789 31 6.766 32 6.702 33 6.629 34 6.624 35 6.608 36 6.534 37 6.488 38 6.470 39 6.469 40 6.462 41 6.436 42 6.417 43 6.403 44 6.381 45 6.368 46 6.361 47 6.309 48 6.301 49 6.286 50 6.278 51 6.272 52 6.216 53 6.176 54 6.171 55 6.164 56
GDP per person Difference $ (at PPP) Rank in ranks 36,790 4 3 33,580 7 5 39,590 3 0 54,690 1 -3 30,590 19 14 31,010 14 8 33,560 8 1 27,960 23 15 32,490 10 1 25,370 24 14 32,530 9 -2 29,650 20 8 41,529 2 -11 34,150 5 -9 25,110 25 10 30,920 15 -1 30,750 16 -1 31,660 11 -7 19,530 31 12 31,420 12 -8 28,070 22 1 22,340 27 5 20,500 30 7 30,660 17 -7 30,640 18 -7 28,250 21 -5 21,892 28 1 18,710 32 4 31,150 13 -16 23,360 26 -4 12,120 44 13 10,000 54 22 16,632 36 3 17,600 35 1 9,000 56 21 10,450 51 15 16,047 37 0 21,310 29 -9 8,760 58 19 13,350 42 2 33,840 6 -35 8,140 62 20 3,810 91 48 4,580 82 38 15,513 38 -7 8,869 57 11 6,760 71 24 12,825 43 -5 11,870 46 -3 8,209 61 11 11,720 48 -3 4,030 86 34 5,730 77 24 7,330 67 13 14,550 40 -15 3,780 93 37
Quality of life Score Rank Bulgaria 6.162 57 Romania 6.105 58 Venezuela 6.089 59 China 6.083 60 Vietnam 6.080 61 Bahrain 6.035 62 Lithuania 6.033 63 Jamaica 6.022 64 Morocco 6.018 65 Latvia 6.008 66 Oman 5.916 67 Estonia 5.905 68 United Arab Emirates 5.899 69 Libya 5.849 70 Indonesia 5.814 71 Saudi Arabia 5.767 72 India 5.759 73 Paraguay 5.756 74 Jordan 5.675 75 Nicaragua 5.663 76 Bangladesh 5.646 77 Albania 5.634 78 Dominican Republic 5.630 79 Egypt 5.605 80 Algeria 5.571 81 Bolivia 5.492 82 Tunisia 5.472 83 Serbia and Montenegro 5.428 84 Armenia 5.422 85 Azerbaijan 5.377 86 Georgia 5.365 87 Iran 5.343 88 Macedonia 5.337 89 Guatemala 5.321 90 Honduras 5.250 91 South Africa 5.245 92 Pakistan 5.229 93 Bosnia and Hercegovina 5.218 94 Ghana 5.174 95 Kazakhstan 5.082 96 Syria 5.052 97 Ukraine 5.032 98 Moldova 5.009 99 Belarus 4.978 100 Uganda 4.879 101 Turkmenistan 4.870 102 Kyrgyz Republic 4.846 103 Botswana 4.810 104 Russia 4.796 105 Uzbekistan 4.767 106 Tajikistan 4.754 107 Nigeria 4.505 108 Tanzania 4.495 109 Haiti 4.090 110 Zimbabwe 3.892 111
GDP per person Difference $ (at PPP) Rank in ranks 8,664 59 2 8,252 60 2 4,771 79 20 6,270 74 14 2,890 97 36 17,670 34 -28 13,758 41 -22 4,200 84 20 4,660 80 15 11,862 47 -19 12,040 45 -22 14,800 39 -29 18,330 33 -36 10,060 53 -17 3,840 90 19 11,110 49 -23 3,290 96 23 3,600 95 21 4,510 83 8 2,600 99 23 1,660 105 28 5,260 78 0 6,610 72 -7 3,930 88 8 5,770 76 -5 3,680 94 12 7,910 64 -19 6,079 75 -9 3,993 87 2 4,628 81 -5 3,841 89 2 7,630 65 -23 7,499 66 -23 4,050 85 -5 2,740 98 7 10,810 50 -42 2,340 101 8 7,020 70 -24 2,560 100 5 8,090 63 -33 3,810 91 -6 6,500 73 -25 2,280 102 3 7,200 68 -32 1,450 108 7 7,142 69 -33 2,044 103 0 10,400 52 -52 9,810 55 -50 1,808 104 -2 1,226 109 2 960 110 2 672 111 2 1,470 107 -3 1,500 106 -5
